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Jobs Figure: Worse Than the Headline Number

Written by: Richard Cox09/09/13 - 12:30 PM EDT

NEW YORK (TheStreet) -- Last week's main event for U.S. equity markets was the monthly Non Farm Payrolls report, which showed the economy added 169,000 new jobs for the period. This missed the market's consensus estimates of 180,000 but selling pressure in the S&P 500 was offset by a slight improvement in the unemployment rate, which dropped one tick to 7.3%.

This is the lowest level since December 2008. But when we look at the details of the jobs report, some added negatives can be seen. The implications here could be massive, as this essentially indicates the Federal Reserve will have less room to maneuver policy, and begin tapering stimulus programs at its September meeting.

In addition to the miss in the headline payrolls number, figures from the previous two months saw large revisions lower -- with a combined reduction of -74,000 jobs for June and July. The six-month payrolls average is now 160,000 and the real question here is whether or not the Fed feels the economy is in a position to run on its own if less stimulus is pumped into the system.

The unemployment rate is the Fed's preferred metric for making these assessments, but this month's improvements were driven by reductions in the labor force. The participation rate (the number of working-age people in the labor market) dropped to 63%, which is the lowest level since 1978.

Since a larger number of people have simply given up on finding new jobs, it is clear that consumer confidence should see renewed weakness into the final months of the year. Consumer spending accounts for almost three-quarters of the U.S. economy, so there is little reason for optimism in the latest employment figures.

Other aspects of the economy are looking less dismal, however, with manufacturing productivity and the housing market being key points of strength. Last month's ISM manufacturing data rose to its highest levels in two years, with the service sector expanding at its fastest rate in nearly eight years.

For most of the market, the question is not whether the Fed will start implementing its exit strategy for quantitative easing in September, but by how much. Taken in combination, macro data point to a mixed outlook that favors small reductions in monthly asset purchases over larger ones.